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Long Road Still Ahead to Fund New California Water Storage Projects

California recently promised billions of dollars in bond funds to new water storage projects. But it remains to be seen if these projects can obtain water rights and regulatory approval to actually start construction.

The Contra Costa Water District is seeking $434 million in state bond funds to expand the Los Vaqueros Reservoir.Photo courtesy Contra Costa Water District

The California Water Commission recently allocated $2.7 billion from Proposition 1 bonds for eight water storage projects. Proposition 1 was passed in 2014 to fund a range of projects, including the “public purposes” of water storage projects, such as for ecosystem support, flood risk reduction, water quality, recreation and emergency response. Among its many funding provisions, both surface and underground water storage projects were eligible, nonstorage projects were not eligible and Proposition 1 could fund no more than 50 percent of storage project costs.

Proposition 1’s storage provisions were driven by the still common notion that expanding surface storage is the major way to end water problems. This idea has long myth-directed policy and public discussions. The competition for Proposition 1 funds indicates that few large surface water storage expansions are cost-effective in California.

Completing all the storage projects funded by Proposition 1 would increase total surface water storage capacity in California by less than 8 percent, and increase water deliveries by perhaps 1-2 percent, because most of the expanded capacity would refill infrequently. New storage capacity will be useful, but usually has a low and decreasing incremental value for water users and other beneficiaries. The Proposition 1 water storage program could easily be the last hurrah for major expanded surface water storage in California.

Nevertheless, this process has shown some successes, failures and challenges for state water infrastructure bonds, and water development in California more generally.

Successes

Remarkably, it took only four years for this bond fund allocation to be made by a nonpartisan independent commission for some fairly large and complex projects. The commission insisted effectively that projects be well justified and competitively compared. When money is being given away, everyone feels worthy to receive. But the Commission seems to have allocated this $2.7 billion to relatively cost-effective and promising water storage projects. The California Water Commission, long mostly dormant, became an effective institution.

Another major success of the Proposition 1 process is that it brought more creativity to project proposals. The program brought proposals of many sorts, both surface and groundwater storage, from many parts of the state. And the commission allocated funds to a diverse set of the most promising projects scattered across California.

The state could have done much worse. However, it will take years more to complete these projects, and some projects may never be completed. Building major projects has always been a long road.

Failures

Proposition 1 general revenue bonds are to be repaid with general state tax revenues. At 5 percent interest, this $2.7 billion in bonds implies about $135 million/year in less state general revenues available for every other state government responsibility, including education and public health, as well as environmental and water management more generally. Although public benefits will come from these storage projects, in many cases these benefits are likely to be less than the broader public benefits of less-restricted government investments.

A few projects will receive the bulk of these state subsidies. Beneficiaries include state and local agencies and groups receiving these project’s public benefits. But only storage projects were eligible for funding; other nonstorage water projects are likely to provide similar public benefits at less expense.

Challenges

Although partial state funding has been secured, projects now must secure substantial water-user funding. Modern water supplies rely on a “portfolio” approach, mixing a diversified water supply system and diverse efforts to reduce water demands. This approach greatly reduced the costs of the recent drought to urban and agricultural water users. The partially state-funded storage projects will need to compete with other potential water utility portfolio investments for their remaining funding.

The water storage projects, especially the larger ones, must also work within the limitations of existing water availability, water rights priorities, environmental regulations and limited conveyance capacities. Most water storage projects will require water rights, environmental and operation agreements with a host of other agencies and interests. This will be a challenge, but brings possibilities for improving system operation overall, where agreements can be made. Such negotiations are often protracted. Upgrading California’s water system has always been negotiation-intensive (and expensive). This is probably unavoidable, but does need to be better organized and expedited.

Time will tell if these projects will attract sufficient nonstate funding, permits and coordinating agreements for their completion. Some will, and probably some won’t.

State infrastructure policy should be concerned with local and regional balancing of supply and demand management based on performance and costs. Proposition 1 has brought mixed progress overall in this regard, while catering to a common misconception that storage is the major water limitation statewide. Current and future storage expansions should be narrowly targeted to be cost-effective and fit well within the larger system.

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